The Bleak Jobs Picture

Friday’s jobs report from the Bureau of Labor Statistics was bleak. Though the unemployment rate went down to 9.5% (from 9.7%), that’s because the ranks of discouraged workers increased. The economy shed 125,000 jobs, which was mostly due to the end of some 200K temporary Census jobs. Private employers added only 83K jobs.

Here’s an analysis of the jobs numbers from Bloomberg; the New York Times ran this piece yesterday about the struggle in Congress to pass legislation to address joblessness–whether further stimulus money or aid to states or even just extending unemployment benefits.

Our columnist John Miller examines the reasons for this “employers’ strike” in our July/August issue. (Click here to see the editorial note from the new issue, which includes a paragraph on John’s column.)

A post on a blog at the AFL-CIO website talks about the results of a study showing that 55% of people in the United States have been affected by the recession, either by being unemployed for part of it (something like of a third of people, which is pretty startling), or having hours cut, or being furloughed, or being underemployed. Here’s the graphic:

The latest issue of In These Times has a good article by David Moberg on the Democrats’ failure to get behind the issue of long-term unemployment. Here are some key paragraphs from that article:

“The economic case for doing more is overwhelming,” says Economic Policy Institute (EPI) economist Heidi Shierholz. A recent EPI report demonstrates that job-creation policies pay for a large part of their costs by spurring growth and tax revenue—and that does not take into account the value of avoiding social and personal traumas.

More needs to be done to directly aid the unemployed. Only 67 percent of those currently unemployed get benefits. According to the Organization for Economic Cooperation and Development, the United States lags behind most of the 28 other rich countries in the group, replacing on average 28 percent of lost income (temporarily up to 99 weeks for some workers), compared to the leader Norway, replacing 72 percent of income for five years.

As a complementary alternative, the federal government could give tax credits to employers who reduce working hours with no (or little) reduction in pay, thus sharing the work, maintaining engagement, preserving income and encouraging new hiring, as Center for Economic and Policy Research Co-Director Dean Baker advocates. Work-sharing has largely kept unemployment from rising in many European countries (and reduced it in Germany), despite steep drops in GDP.

The federal government could quickly provide jobs for millions by helping states and local governments maintain their workforces. Rep. George Miller’s (D-Calif.) Local Jobs for America Act would have spent $75 billion over two years to retain public-sector jobs, and saved or created 675,ooo public and private jobs. The federal government could also directly employ people for projects such as retrofitting homes for energy efficiency, conserving natural environments, creating public art and providing social and educational services. University of Massachusetts economist Robert Pollin proposes creating 18 million new jobs by 2012 with public investment in such jobs financed by $700 billion in bank loans and $700 billion in new federal spending.

Even the economists over at Goldman Sachs are calling for more stimulus to address the bleak jobs picture. (Hat-tip to Doug Henwood over at lbo-talk–“Hi Doug!”; everyone should subscribe to Left Business Observer); here’s an excerpt of the statement from Goldman’s chief economist, Jan Hatzius (excerpted by James Pethokoukis at Reuters):

1. Friday’s jobs numbers were disturbing. At best, they show an economy that is growing only quickly enough to keep the unemployment rate flat near 10%. At worst, they suggest that the labor market is once again turning down.

2. With inventory investment now again close to a normal rate, GDP growth is likely to converge to final demand growth, which has averaged only 1½% since mid-2009 and is unlikely to accelerate given the various headwinds facing the economy.

3. The weak labor market implies not only a great deal of hardship for workers, but also a growing risk of deflation.

4. So what is to be done? On the monetary side, the possibilities include additional purchases of Treasuries and mortgage-backed securities, as well as TALF-like structures—i.e., special purpose vehicles that lend to nonbanks using equity provided by the Treasury and debt provided by the Fed.

5. On the fiscal side, we hope that Congress passes the extension of emergency unemployment insurance, continued aid to state and local governments, and at least a temporary extension of the bulk of the 2001/2003 tax cuts beyond the end of 2010.

6. A failure to enact additional stimulus—at a minimum, extended unemployment benefits, state fiscal assistance, and extension of the bulk of the 2001/2003 tax cuts—would imply a downside risk to our GDP and employment forecasts, specifically for 2011.

Meanwhile, David Brooks’ column in today’s New York Times makes the case that if the fancy, elitist economists (with “very high I.Q.’s”)–who have misled us so badly in recent years, he opines!–are calling for more stimulus, Obama should take a more “pragmatic” approach, rather than trying to play the economy like a fiddle (“Proponents of a second stimulus need to beware of reckless new debt, but we must also guard against severe austerity.”). (As if the economists most inclined toward this kind of Keynesian policy are the ones who led us into the financial crisis!) If David Brooks were in a burning building, he’d be playing his fiddle, singing about how we shouldn’t let those elitist firefighters convince us to put too much water on the fire, or water that is too wet.

The more sensible piece on that page of today’s Times is the one by Yves Smith (of Naked Capitalism) and Rob Parenteau, about how capitalists are being short sighted in failing to plow their profits back into their companies. Moreover, both corporations and households are tightening their belts more, so now is not the time for public austerity:

If households and corporations are trying to save more of their income and spend less, then it is up to the other two sectors of the economy–the government and the import-export sector–to spend more and save less to keep the economy humming. In other words, there needs to be a large trade surplus, a large government deficit or some combination of the two. This isn’t a matter of economic theory; it’s based in simple accounting.

What if a government instead embarks on an austerity program? Income growth will stall, and household wages and business profits may fall.

More evidence of an employers’ strike: they are failing to hire, but also failing to invest.

Some scary stories are coming out about exactly what states are cutting to deal with their fiscal crises; I’ll try to gather up some of those stories and do a post on the states later this week.